Jewelers debate impact of online gems

15 Aug 2006 -

By CLANCI COCHRAN
Contra Costa Times

WALNUT CREEK, Calif. — C. Leslie Dent has been giving his business to Marc Rice Jeweler and Awards for about 30 years.

"My wife came into his ... store in Oakland and bought my first Masonic ring," the Dublin man said. Bucking tradition, he recently ordered jewelry for his wife online. While that may have kept him out of Rice's jewelry case, Dent found himself back at Rice's Walnut Creek store last month to drop off plaques to be engraved and to pick up a ring for a fellow mason.

"I wouldn't go anywhere else for masonry," Dent said.

No longer do people interested in purchasing fine jewelry have to patron physical jewelry stores -- independently owned, publicly traded or otherwise. The options are wide open, many of them come down to a simple point-and-click at the computer.

Online retailers are not the only newcomers to jewelry. Also putting an ever-tighter squeeze on traditional independent jewelers are big-box and club stores such as Wal-Mart and Costco Wholesale.

Just ask Mike Rinehart. The owner of Rinehart's Jewelers in Walnut Creek closed his doors earlier this month, blaming industry changes for slower business.

"You go online and now start shopping the diamond globally, not regionally," Rinehart said.

Americans, he said, are not traditionally negotiators. Now that jewelry is sold on the global scale, "you can determine what you are going to pay," he said.

Rinehart said competition from online retailers and wholesalers such as De Beers, the diamond giant that opened its first U.S. retail store last year in New York, could mean a squeeze on marketshare, especially for independent jewelers. He likened the competition to cars and horse-drawn carriages trying to operate on the same street.

Despite industry changes, other East Bay independent jewelers said they are optimistic about the future of their business. But in order to stay in the game, jewelers said small retailers must differentiate by offering repairs and other services.

"The (jewelry) industry is evolving and changing with the times," said Helena Krodel, spokeswoman for the Jewelry Information Center, a consumer information source on fine jewelry.

Although other purchasing options have entered the market, she said, "People do in fact still like to shop at brick-and-mortar stores."

Competing against a brick-and-mortar store boasting the name Tiffany & Co. is hard enough for independent jewelers. Rinehart said in addition to branded jewelry, "big box" warehouse stores are selling fine jewelry in store and online.

"If Costco and Wal-Mart actually opened (formal) jewelry departments, the mom-and-pop would be out of business," he said.

Karats, composition and other factors determine price ranges within a same jewelry type. The cost difference can be in the thousands.

Take pearl strands, for example. An 18-inch cultured Akoya pearl necklace with a 14-karat gold clasp is listed for $715 on Zales.com. A similar necklace, with an 18-karat white gold clasp and a hand-knotted silk cord, is offered at $1,325 by online jewelry retailer bluenile.com. At Tiffany.com, a 16-inch pearl necklace with the same size pearls is $4,500 (but likely contributing to the added cost is the brand name, which is engraved on an 18-karat white gold clasp).

Online, Costco offers "a different selection than what we have in our warehouse," said Ginnie Roeglin, senior vice-president of e-commerce and publishing.

On the Web site, she said, the company is able to expand its jewelry collection, including unique pieces.

"It's actually something that's relatively easy to sell online," Roeglin said. "Many tens of thousands of carats of diamonds are sold."

The popular Internet marketplace eBay is familiar with the ease of selling jewelry online. In the watch and jewelry category, the global annual total value of successfully closed listings for 2005 was $1.9 billion. A company representative said the seller's identity is not as important a factor as the item being sold.

"I think, first of all, they respond to the beauty" of a piece, said Sandra Graham, eBay jewelry style director.

Graham said the convenience of shopping online correlates with busy people who want to spend time at home. If, according to a 2005 Nielsen/NetRatings report, more people buy jewelry from eBay than from any other Internet site, how can brick-and-mortar stores compete?

Graham said, "eBay is around the clock, around the world." "How can you beat that?"

Graham said a diamond ring and more than four watches are sold every minute on eBay in the United States. The standout eBay jewelry purchase is a pair of Harry Winston diamond earrings that sold for $149,000 in 2004.

The leading virtual jewelry box is bluenile.com, "the largest online retailers of certified diamonds and fine jewelry," according to the Web site.

"It's a very competitive industry," company spokesman John Baird said.

When the company was established in 1999, there were only a handful of online jewelry retailers, Baird said. Today, it is an industry leader.

Blue Nile was born from CEO Mark Vadon's frustrating experience shopping for an engagement ring in 1999.

"He was very overwhelmed by the process," Baird said.

Discovering that fine jewelry is "very different than anything else you would purchase," and that there was no Kelley Blue Book equivalent for the stuff, Baird said Vadon started Blue Nile to educate consumers on diamonds.

"We really set out to just empower consumers along every single step of the process," Baird said. "Instead of the retailer being in control of the process, the consumer is in control of the process."

Blue Nile gets the majority of its new customers through referrals, Baird said. According to the Web site, the company has sold more than 75,000 engagement rings.

Tom Shane, president and owner of Shane Co., said he is not concerned with the emergence of online buying options. "In truth, we don't see it as a dramatic shift," he said. "People have always had options, like ordering jewelry from catalogs and over the phone."

Shane said the Internet has "leveled the playing field," allowing brick-and-mortar stores to offer some of their selections online.

"We're able to reach out to customers all over the world," Shane said. "We've been really pleased with our Internet results" in terms of online sales, and also customers viewing their products online before coming to a store.

"And we're not naïve (to the fact) that they shopped us" online, he said. "They've shopped the competition as well."

When Shane got into the industry 35 years ago, he said, certificates were almost nonexistent. Now, he said, customers are relying on certificates rather than gemologists or salespersons to appraise diamonds.

Two diamonds can have the same clarity grade and have imperfections in different places but still receive the same grade.

Rinehart said that when the Gemological Institute of America, the nonprofit institute that developed a diamond-grading system, standardized the way diamonds are graded, it took the process from "an art form into a product," he said. Diamonds became "as shoppable as a General Electric toaster."

Shane said many of their stones are certified, and that he is not opposed to the certification concept. But the business owner said buying diamonds based on certification alone is a dangerous way to shop.

"We don't advocate buying without really examining the diamonds themselves," he said. "We think you should really look at the stone. Every diamond is different."

Referrals are the bread and butter for mom-and-pop jewelers as well.

Betty Seid of Concord said she learned of Marc Rice Jeweler and Awards from friend Tammie Jolicaeur -- who heard about it from gemologist Angie Tuason. Tuason has worked at Marc Rice since 1988, and she met Jolicaeur while she was working as a buyer for another jewelry store.

"Good people follow you," Tuason said. She said the jewelry business is much harder for upstart independents.

A long history of success doesn't hurt, either.

Marc Rice Jeweler and Awards was founded in 1915 in Oakland. A second store opened on Newell Avenue in Walnut Creek in 1980, and after closing the Oakland store after the 1989 earthquake, the business was moved to Main Street. In 2004, the shop was moved back to Newell Avenue because of high rent prices. Marc Rice (nee Marc Rice Jr.) now runs the family business.

"Because of our wide clientele, we're doing very good. We have a lot of older clients that are very faithful to us," Tuason said. "There's still a lot of people who will still go with the stores that they've known" for years.

Jolicaeur said she continues to come to Tuason because she is familiar with her work.

"I can trust her with my jewelry," Jolicaeur said. "I think it's important that you know your jeweler personally."

John Stanziano opened JNS Designs on Crescent Drive in Pleasant Hill in 2004, but he has been in the jewelry business for 22 years. A retail manufacturer, Stanziano does not sell wholesalers' products.

"In my experience, there are so many retailers that are doing that kind of thing already that I can't compete with them," he said.

What helps independent jewelers stand out, Stanziano said, is if they offer products different than what is on the Internet or already in stores.

Stanziano has found a niche by attaching his jewelry to custom-made, high-end handbags. He said that though the market share might be decreasing, independent jewelers don't have to bow out yet.

"Everyone out there is going to need a good jeweler because they're hard to find," he said.

Vartan Toutikian, co-owner of Master Diamond in Walnut Creek, said mom-and-pop jewelers should focus on service.

"When somebody says jump, you say how high," he said. Toutikian said he and his wife brought customers with them when they moved their business from Concord to Walnut Creek six years ago.

Economy shifts have prompted shifts in the jewelry business, Toutikian said. He said in the past, customers would buy two to three carat diamonds but now shop for smaller sizes. Independent jewelers should not expect profit margins to be as high as they used to be, he said.

Purchasing jewelry online does not necessarily mean prices will be cheaper than making a purchase in a store.

A rectangle Tiffany Grand automatic watch with an 18-karat rose gold face, an alligator strap and an ivory dial is priced at $5,500 on tiffany.com, and an automatic Cartier watch with a rose gold frame, alligator strap and a crystal sapphire face is priced at about $13,500 on Costco.com.

Bluenile.com offers about 60,000 diamonds and 100 settings, Baird said. With the "build your own ring" site tool, customers can request the type of ring they desire on Monday and have it on their finger by Friday.

Baird said jewelry retail shops usually offer a small amount of inventory that changes about every 10 months. He said if a customer does not find what they are looking for, a store clerk will turn them toward something else in the store.

Dent said he was soured by his online shopping experience.

"I just bought my wife some jewelry online," Dent said. He and his wife agreed they should send it back. "It was such poor quality. I'll never do that again," he said. While the jewelry looked nice in the picture, Dent said, "when it came to the article, I was so disappointed."

Graham said online shoppers can avoid buyer's remorse by taking a few precautions. First, she said, read the sellers' item descriptions carefully. She also suggests examining item pictures, reading seller feedback and always making PayPal, not cash, purchases.

"I never buy from anyone who does not have a return policy, a money back guarantee," Graham said. "If you go through all these steps you can't miss."

Tuason and Rice said people who order jewelry online are often surprised at what they receive. People "buy at QVC and then they bring it here" to be fixed, Tuason said.

Rice said it is possible independent jewelers lose customers to online retailers, but it's important that stores have merchandise for customers to see and feel for themselves. Rice said he remembers what his father told him about the jewelry business: "You have to service your customers."

Clanci Cochran covers general assignment. Reach her at 925-943-8163 or ccochran@cctimes.com.

THE 4 C'S OF DIAMONDS

Carat: the weight of a diamond

Clarity: the presence of inclusions in a diamond

Color: the degree to which a diamond is colorless

Cut: the angles and proportions of a diamond

Source: adiamondisforever.com, the De Beers Diamond information center